7 ways for grocers to gain customer attention when budgets are stretched
“Improvise. Overcome. Adapt.” It sounds easy enough when a square-jawed, upright Clint Eastwood barks orders to a group of elite Marines in the film Heartbreak Ridge. But for American consumers, that advice may be hard to follow as they desperately adjust shopping habits to overcome inflation-related record-high grocery and other consumer goods prices.
According to the Bureau of Labor Statistics, April consumer prices were up 8.3 percent from a year earlier. And for foodstuffs in particular, the increases were sharper. For example, The cost of beef is up 20 percent over last year and chicken is up 13 percent, according to the latest Consumer Price Index report.
Such budget-squeezing conditions have led many to employ creative means to feed their families. One recent trend involves store-hopping and brand-hopping to find the best values. For example, consumers are trying discount grocers and “dollar” stores they would not have previously considered, switching to private label brands, and purposefully looking out for sales and promotions.
As grocers and other retailers anticipate changes in consumer behavior, Dorsey & Company President Julius C. Dorsey Jr. and our resident grocery and retail expert, D&Co. Associate Mark Bogomolny, provide seven tips to be part of the deal-hopping “route” and to keep customers for the long run.
1… Make Sure You’re on the ‘Store-Hopping Route’
Get the attention of shoppers looking for deals by promoting popular staples to bring customers in, and by creative merchandising in-store, Bogomolny suggests.
“Each grocer knows his market well enough to know what items move customers: Ground beef, bananas, eggs, and milk, are a few of the common items that will get a shoppers’ attention,” he said. The idea of having loss leaders is nothing new to the supermarket industry. However, the retailer has to merchandise their store so that the shopper sees a greater mix of items besides the loss leaders (low cost, unprofitable inventory whose prices are reduced to draw attention to more profitable products). Make the store layout work for you as the shoppers travel the store looking for the low-priced merchandise.”
Dorsey issues a caveat to grocers who feature loss leaders to attract customers, however: don’t rely on competing on price alone.
“Competing on price can be easily duplicated by others that have features and benefits you don’t, and your discount can be surpassed by competitors that can subsidize the lost revenue,” he said. “Instead, consider events that draw people to your location, like a local art show or a small music ensemble performing in the lobby, formatted as a series that both protects store reputation and good will and helps to makes the destination routine.”
2… Reorganize Items for Optimal Value Product Placement
Extending the advice above, it may be beneficial for grocers to purposefully merchandise certain items that attract customers and contribute to store profits.
“You want to make it easier for the customer to find some of these staples. However, if you are losing money on each sale, you don’t want to make it too convenient,” Bogomolny said. “Manufacturers and their deals will continue to dictate much of the product placements, especially the promotional spaces within the store. My biggest suggestion is to make sure that if there are competitive private label items, make them easy to find.”
3…Promote Private Label and Store Brands (if it makes financial sense)
The win-win scenario is obvious when it comes to private label promotions, Bogomolny said.
“The shoppers are getting high quality products at a savings versus name brands, while the grocers are getting higher margin sales, and hopefully developing the loyalty of selling a product that is only available at their store.” He said. “Grocers need to make sure the private label products are available, easy to access, and in a shelf position that directly compares with the national brand so that the consumer can easily make the switch to the store brand”
On the other hand, grocers and customers do a delicate dance when it comes to private label goods, Dorsey said. Both make calculated gambles – especially when making a switch. It may sound like the obvious, but Dorsey recommends reducing risks to net sales and customer satisfaction when getting customers to try new or less well-known brands.
“If customer satisfaction is diminished, the grocer risks some erosion of overall preference or confidence,” Dorsey said. “Managing both sides of downside risk is the surest way to increase net sales.”
And on the latter point Dorsey makes, if promoting private label brands doesn’t benefit the bottom line, re-think the idea.
“Net sales is surely a higher goal than switching customers to another brand, including the targeted private label items,” he said.
4… Find Creative Ways to Offer Discounts Without Straining Already Slim Profit Margins
Private label products are not the only things that bring customers in when budgets are pinched. Grocers can increase chances of winning new business and getting more from loyal shoppers with targeted promotions – whether dictated by the manufacturers or conceived by store management.
Again, as with promoting private label discounted items, grocers do a delicate dance, trying to balance net sales against transactions and volume.
“Getting the shopper to buy more items per shopping trip will help overall profit dollars if not individual product margins,” Bogomolny said. “Since people are making fewer trips to all types of retailers, having a wide range of items that may be less usual for a grocer to carry may bring some larger margins. For instance, increased selections in non-foods or health and beauty can allow the shopper to pick up items that carry a higher margin and allow the customer to skip making another trip.”
In some cases however, Dorsey said, increased transactions trump individual margins because creating customer habits to visit more often can have long term benefits to certain retailers. Grocery is no exception. This may not be easy, but just letting transaction counts erode cannot be sustained, and success increasing transactions have positive impact on long-term sales and profit.
“Some industries favor transactions over margin. Despite $5 fast food burgers, profit is often calculated in pennies, so repeat customers are the tops,” he said. “In this way, the customers’ behavior is the prize, and profit will follow them.”
Instead of merely reducing prices, Dorsey suggests activities to cultivate repeat visits.
“Build incentives to visit more often; this may include some special discounts, but they must be arranged to make more frequent visits a ‘good’ thing for customers to do,” He said. “Loyalty programs are built on this reasoning, but are so common they may become mundane instead of encouraging the customer to take another look to learn how to collect the incentive.”
5… Work Around Manufacturers on Special Promotions
This is an area that requires shifting from “the way we’ve always done it,” Dorsey said. The weekly circulars featuring grocery deals are often driven by the deals suppliers extend to grocers – and often subsidized by the distributor who then determines which items are featured. But uncertain times call for more creative measures – including evaluating vendor relationships based on effects on profits, Dorsey said.
“This is an old issue in grocery stores that puts too much control in the hands of the vendors,” he said. “When vendor driven offers fail to achieve ROI and profit achieved by internally produced promotions and features, stop using them.”
The downside of the go-it-alone approach to discounts, however, could be a hit to profits, Bogomolny said. But done right, the grocer is a better gauge of customer preference and can offer discounts accordingly where it has some leverage.
“Obviously, a store can decide to promote whatever it wants, but if they are not working in conjunction with the manufacturer, the store will most likely be taking an even bigger hit on the sale of those items,” he said. “As far as those items that are not coming from a specific or branded manufacturer such as produce or meats, the retailers are very aware of what items will move customers. .”
6… Don’t Let Size Keep You Out of the Hunt
The small, locally- and family-owned grocers may not have the leverage to offer bulk discounts as deep or as frequently as the national chains and big-box retailers. The best thing that the small shops can do is stay true to who they are.
On the face of it, the advice may seem obvious, but there is value in not veering too far away from the brand identity and experience that keep loyal customers in the small shop aisles.
“Make sure that you are maintaining those things that are your strengths whether it is levels of customer service, specific marketing to your shoppers’ demographics, etc.,” Bogomolny said. “In addition, I would consider temporary price reductions on some items that are staples in your community. You need to keep bodies coming through the doors.”
Here again, Dorsey reminds grocers of his advice to not compete on price. As Bogomolny said, the smaller shops should stay true to who they are – and NOT try to be something they are not. Instead, Dorsey said, own the small shop identity but communicate the brand wider.
“Communicate to targets and in places the big stores don’t, won’t or can’t address,” he said. Less competition from the big players (from advertising in places and ways they don ‘t) often translates to greater return for marketing dollar invested by the smaller shops.”
A warning: don’t expect instant results. Instead, Dorsey said trust that the change in marketing tactics and communications vehicles will yield a desirable ROI in the not-to-distant future.
“Bear in mind when changing media channels, it takes series of exposure to first get noticed and then to cultivate prospects’ understanding and a desire to try your product,” he said.
7… Capture and Welcome Back New Shoppers Who Discovered You on New Deal-Seeking Shopping Route
Whether a grocery store sees increased traffic from deal-shopping customers, or is re-discovered by regular customers, the ultimate ideal is to keep them coming – in good times and bad.
“Welcome them! Ask them to come back!” Dorsey said. “This may seem useless, but we believe that thanks and invitation standout in the midst of what many retailers take for granted.”
From the point of view of both D&Co. experts, keeping satisfied customers boils down to delivering excellent customer service. Here, staff training is essential. In some cases, Dorsey said, training staff to ‘survey’ customers may be worth the time investment.
“Simply asking if someone shops here regularly is free when your staff is well-trained and motivated,” Dorsey said. “You won’t get and keep new customers without the continuous help of your staff.”
In fact, a positive service experience may be the only real differentiator between grocers when price and location convenience are relatively equal. That’s why Bogomolny recommends grocers take small steps to stand out from the competition.
“Unfortunately, a can of tomato soup is the same in all stores, so you need to differentiate,” he said. “What makes one want to come back is an environment that is friendly, helpful, easy to shop, and clean.”
While inflation-related costs of goods are keeping prices on the upside these days, we all hope this is a temporary situation. History has proven these trends to be just that.
For now, grocers and retailers of all stripes do well to accept the current realities, adjust norms, and be creative AND mindful of net consequences from their adjustments to find solutions. The good news is these changes could cultivate the kind of shopper behaviors that are sustained for the long haul.